CHEMCON SPECIALTY CHEMICALS IPO
Chemcon Specialty Chemicals Pvt Ltd located at Gujarat is one of India’s largest manufacturers of specialty chemicals. They supply the chemicals inside India and also for global demands.
The company has planned to become a public company by raising funds through book built IPO in stock exchanges. It plans to increase funds by both fresh issues and offer for sale.
The total amount the company is looking for is Rs. 318 Cr with 93.53 Lakhs of shares. The fresh issues hold 48.53 Lakhs shares and Offer for sale holds 45 lakhs shares.
The company has grown its revenue at CAGR 31.57% per annum in the last 4 years.
The main agenda of the IPO band is to increase its manufacturing sites and capacity by 80%. Currently, their manufacturing capacity is around 6000 MT, which is to be enlarged to 11000MT.
Let us look at the business overview of the company and major products which make the momentum in the company. Also, will be looking at the financial, fundamental, and intrinsic analysis.
CHEMCON SPECIALTY CHEMICALS – BUSINESS OVERVIEW:
The company has largely focused on high demand chemicals like HMDS, CMIC, oil well completion chemicals, and few pharmaceutical API.
The company has marked a revenue of Rs. 266.02 Cr through operations. In which HDMS has shown a remarkable share of voice in total revenue.
The revenue split of the company over the fiscal year 2020 is,
· HDMS (50.08%)
· CMIC (12.92%)
· Other Pharmaceutical chemical (0.75%)
· Oilwell completion Chemical (33.47%)
· Others (2.77%)
Let us understand the overall Indian market for chemical manufacturing,
· The market has grown to a total value of Rs. 59900 Cr on CAGR 8.6% in 2019-20. This includes export the business of Rs. 26500 Cr and Domestic consumption of Rs. 33400 Cr.
· The chemical manufacturing industry is expected to grow at a CAGR of 8.3% for the next 4 years and to reach Rs. 82300 Cr. This includes Rs. 32800 Cr of export and Rs. 49500 Cr of domestic consumption.
In addition to this, the company is also producing antibiotics and antiviral drugs.
Apart from this, the company has a huge share of the revenue from the rest of the world. UAE (26.43%), Thailand (2.80%), Serbia (2.21%), China (1.45%), others (2.87%) in the fiscal year 2020.
CHEMCON SPECIALITY CHEMICALS – PRODUCTS ON FOCUS:
Here we will be taking through two key products in which the complete nation and part of the world depend on Chemcon.
They are HMDS (Hexamethyldisilazane) and CMIC (Chloromethyl Isopropyl carbonate)
· The product has high demand both in India and the rest of the world.
· Chemcon contributes to almost 11% of the market share. They are the 3rd largest producer of HMDS in the world.
· They are the only manufacturers in India.
· HMDS is basically an organosilicon compound, which is used in the production of,
§ Water treatment chemicals
§ Epoxy curing agent
§ Petroleum additives
§ Polyamide resins, adhesives, inks, and fibers.
· The global HMDS market was 243USD Million in FY2019-20, with the demand of nearly 25.4 KT (KT = Kiloton, 1000 Kg).
· Currently, Chemcon is producing HMDS about 2649 MT (MT = Megaton, 1000 KT)
· In India, the production of HMDS has grown at the rate of CAGR 10.5% in the last 7 years. Also, it is projected to grow at a CAGR of 10.6% in the next 4 years.
· Whereas, the projected production growth of HMDS in China and Japan is 2.4% and 2.8% respectively.
· In India, the total demand of HMDS in 2019 was 4009 MT, in which Chemcon supplied 2649 MT. It is expected to 6000MT of HMDS as demand in India by 2023-24.
· CMIC is used to an intermediate in the production of anti-aids and hepatitis B drugs.
· Globally, Chemcon has a market share of 26.2% in the manufacturing of CMIC.
· The global CMIC market in 2019-20 was 27.2USD Million with a demand of 3.9 KT.
· India and China are the largest suppliers of CMIC with a total of 36% and 64% of global shares respectively.
· India as the nation is the largest consumer of CMIC, which accounts for 65%.
· The total India production of CMIC in 2019-20 was 1421 MT. In which,
§ Chemcon – 677 MT
§ Anshul Speciality – 464 MT
§ Paushak – 280 MT
· India is growing at a rate of 14.8% in the production of CMIC in the last 7 years.
· The CMIC global demand is projected to grow at a CAGR of 10.8% for the next 4 years.
· India demand for CMIC in the year 2019-20 was about 2530 MT, in which Indian companies served 1421 MT.
· The demand is estimated to be at 3800 MT by 2023-24.
FINANCIAL ANALYSIS – CHEMCON SPECIALITY CHEMICALS:
Source: SEBI, Red Herring Document
The above image on financial performance would make you clear, that the company is growing at a huge rate in the last 4 years in CAGR
· Revenue – 31.57%.
· Assets – 37.77%
· EBIT – 26.82%
· PAT – 36.08%
Strong performance has been seen in the last three years. Anyhow, the revenue has dropped from FY2018-19 to FY2019-20 from 304.33 Cr to 266.02%. There was a shortfall of about -12.59%.
· The revenue from export is growing at a rate of 17.57% CAGR in the last 3 years.
· They have a customer base across 8 countries.
FUNDAMENTAL ANALYSIS – CHEMCON SPECIALTY CHEMICALS:
Before entering into the fundamentals directly, let us have a recap on the total number of shares.
· Existing Shares – 3.17 Cr shares
· Fresh Issue – 0.49 Cr shares
· So, the total current share – 3.66 Cr shares.
The current EPS is 15.37 on FY 2019-2020. So, if we calculate EPS by current shares is 13.33.
· The 3 years EPS growth is 22.8% P.A. (CAGR)
So, P/E ratio:
· By existing shares – 22.12
· By Current shares – 25.51.
Industry P/E – 31.3
· Return on Net Worth (RONW) – 34.23%
EXCESS CASH PER SHARE:
Liquid cash per share is known as excess cash per share
· Fixed Assets
§ Financial assets – 0.48 Cr
· Current Assets
§ Cash and Cash Equivalent – 1.07 Cr
§ Bank Balance – 13.03 Cr
§ Other Financial Assets – 21.74 Cr
Total Liquid Assets = 35.84 Cr.
Total Liabilities = 61.64 Cr
Excess cash = Total Liquidable asset – Total Liabilities
= -25.8 Cr.
Excess cash per share = -7.05 Rs.
Net Asset Value per equity share = Rs. 44.91
The intrinsic value with EPS 15.37, expected growth of 22% (EPS 3 year’s growth) with marginal safety of 20%,
The intrinsic value is Rs. 366. So, the IPO price is undervalued by 7.9%.
· The P/E is much attractive and lesser than the industry P/E.
· Monopoly operation and holds the majority of market share globally and in India.
· Focused approach and generating a huge volume of business across the world with 8 global clients.
· The revenue growth of 31.57% is really awesome.
· The IPO price band is less than the intrinsic value.
· The Gray market premium is about 92% higher than the IPO price band.
· More than 50% of the business comes from just 5 customers.
· Industrial pollution act.
· Liquidable cash per share is in the negative (-7.05 Rs)
· Most of the raw materials are dependable in China.
· Revenue fall in the last 1 year of -12.59%
IMPORTANT DETAIL OF CHEMCON SPECIALTY CHEMICALS IPO:
· IPO Opening date – 21 September 2020.
· IPO Closure date – 23 September 2020.
· IPO Bid price – Rs. 338 -340.
· Issue Size – Rs. 318 Cr.
· Issue shares – 93.53 lakhs shares
· Face Value – Rs. 10 per share.
· Lot Size – 44 shares
· Minimum Lot – 1 (44 shares) – Rs. 14960.
· Maximum Lot – 13 (572 shares) – Rs. 194400.
INSIGHT FOR INVESTORS:
· Fincareplan doesn’t promote or recommend any of the IPO.
· Chemcon specialty chemicals have been strong in their business revenue. They are focusing on special products which have a huge demand in the global market.
· They act as a monopoly in major products in India. Also, they have a clear projection of expanding manufacturing sites and capacity.
· The market is also to be grown at the rate of more than 11% year on year and demand for HMDS and CMIC is growing at more than 15%.
· The P/E is lesser than the industry P/E. The specialty chemical industry is growing these days as raw material requirements are high.
· The company share will be good to invest and hold for a longer period as it is an intrinsic value.